Sept. 8 (Bloomberg) -- The buyer of two penthouse condominium apartments for $53.5 million in Manhattan's Plaza Hotel sued the developer for fraud, claiming he was misled about the quality of the properties.

Elad Properties LLC promised ``one of a kind'' apartments on Fifth Avenue but made ``material changes'' during construction and failed to disclose them, according to a 55-page complaint filed on Sept. 5 in New York State Supreme Court.

``This was a classic bait and switch,'' Y. David Scharf, the purchaser's lawyer, said in a statement issued today. ``My client was led to believe that it would receive one of the most luxurious apartments in New York history; It got far less than what it bargained for.''

The New York Observer reported the buyer of the penthouses is Russian financier Andrei Vavilov. He didn't respond to e-mail sent by Bloomberg News for comment.

Design changes to the original plans decreased the size of the apartments, lowered ceiling heights and shrunk the windows, according to the complaint. Unit 2009 was offered at 6,316 square feet and unit 2011 was 2,906 square feet, the complaint said. The total purchase price for both apartments works out to about $5,800 a square foot.

Among those who bought condominiums at the Plaza are former Bear Stearns Cos. Chief Executive Officer James Cayne and New York developer Harry Macklowe.

`Hideous Grate'

The buyers are identified in the suit as Penthouse 2009 Inc. and Penthouse 2011 Inc. The complaint said they bought the units sight unseen from the developer and broker, relying on a ``high tech interactive'' model which lit up to highlight different parts of the penthouses, including floor to ceiling windows.

During a June 25 walkthrough, the buyers found three feet of wall beneath the bottom of the windows and a ``hideous drainage grate'' on the roof outside the windows, according to the complaint.

``Unlike the classic Eloise series of children's books set in the Plaza Hotel,'' where the rooms ``embodied the height of elegance and sophistication, the same cannot be said of the penthouses,'' the complaint said.

Elad spent $400 million and two years renovating the Plaza, famed for its Palm Court, Oak Room bar and guestbook that has included Marilyn Monroe, Truman Capote and F. Scott Fitzgerald, with 182 condominiums and 282 hotel rooms. The plaintiffs agreed to pay $53.5 million for the penthouses.

Default Declared

When the buyers refused to close the sale, Elad declared them in default and sought to keep almost all of their $11 million deposit, according to the lawsuit. The plaintiffs are seeking a return of the deposit and more than $20 million in damages.

Elad's broker, Stribling & Associates, and its law firm, Kramer Levin Nafthalis & Frankel LLP, are named as co- defendants. Kramer Levin is holding the deposit for the apartments.

The lawsuit is ``baseless,'' Jay Neveloff, a partner at Kramer Levin, said in a statement.

``The apartments as delivered are the apartments as described on the plans he reviewed and the contract he signed,'' Neveloff said. ``Because the purchaser has, for some reason, changed his mind and decided not to close, does not alter the facts.''

The suit is Penthouse 2009 Inc. v. Plaza Residential Owner LP, 602578-08, Supreme Court of the State of New York, County of New York.

To contact the reporter on this story: David M. Levitt in New York at dlevitt@bloomberg.net.

Last Updated: September 8, 2008 16:57 EDT